In a Fortune Magazine article, Miles Nadal addresses the powerful emotional resonance of “home,” and what it means for the long-term outlook for the residential real estate market.
The housing market may be at a standstill–Americans are growing more psychologically attached to their homes than ever
In 2023, the residential real estate market’s headwinds have become headlines. By now, we are all familiar with the toll that higher interest rates, inflation, and economic uncertainty are taking on the sales volume and valuation of houses across North America. But for all the analysis and discussion, one essential factor is consistently absent: the distinction between a house and a home–and what emotional equity has come to mean for the long-term durability of demand.
It is well documented that owning a property is the single most important way to build household wealth. Even before the pandemic-era housing boom that began in 2020, the median homeowner had 40% more household wealth than a renter, according to a 2019 U.S. Survey of Consumer Finances. Between 2016 and 2019, housing wealth was the single biggest contributor to an increase in net worth across all income groups.
While a house is typically the single largest investment for most households, the highly individual and emotional metrics that drive homebuyers make it tricky to anticipate how they will respond to the triggers that inform other major consumer transactions.
A house vs. a home
One example of the power of such responsive emotion is the decision many people made during the pandemic to abruptly move away from urban centers. Between March 2020 and February 2021, the number of those moving out of densely populated areas surged almost 20%, according to national demographic research tracked by Stateline. Within the following year, it returned to pre-pandemic levels.
Nevertheless, for economists and financial experts, a house is, well, a house. It’s an asset with specific physical characteristics that is most often inhabited by a group of related individuals. However, that narrow description misses the enduring emotional power of a family home.
The convergence of financial benefit and emotional clout all but guarantees that residential real estate markets will rebound after their recent slump. More than that, pent-up demand will ultimately drive market demand forward as interest rates gradually flatten or ease and the transfer of wealth from baby boomers to millennials continues apace.
Humans, after all, are hardwired to be territorial creatures: They seek comfort and security by establishing clear boundaries around defined spaces and gathering with others they trust. Unsurprisingly, nine in 10 people believe that owning a home is an integral part of the American Dream, according to the National Association of Realtors. One of the main reasons immigrants consistently cite for their relocation is the ability to own property and to have that property ownership protected by law. Research from the Urban Land Institute shows that even as the composition of immigration changes in the U.S., the homeownership rate among foreign-born populations holds strong at over 50%, compared to the 66% rate for the native-born population.
Regardless of how long you have lived in North America, owning a home is a cultural rite of passage. Proactively choosing to put down roots is part of the critical transition from individual to committed community member.
Homeownership post-COVID
In the aftermath of the pandemic and in the face of ongoing economic and geopolitical uncertainty, the notions of “home” and a trusted and safe community have become more resonant than ever. A 2022 survey by Peerage Realty Partners 2022 research showed more than 75% of respondents felt that the concept of having a home was even more important to them in the aftermath of the health crisis. Specifically, the comfort a home provides and the level of safety in a community were top priorities.
This mindset is also reflected in the fact that the length of residence in a home now averages more than 13 years compared with five to seven years between the mid-1980s and the mid-2000s, according to First American Data & Analytics and Redfin. People are in it for the long run.
Of course, it is critical to consider that every economic downturn inevitably brings about structural shifts as recovery sets in.
Issues that affect the reality of homeownership and elicit emotional responses, will also continue to surface. For example, residential development and construction are increasingly affected by an acute shortage of affordable, urban housing, as well as a broader climate change agenda.
Rather than a threat, the disruptive pressure to implement changes is positive for buyers and sellers in the medium-to-long term. It allows agents to provide a higher level of customized service and data to both sides in a transaction, and to execute sales more efficiently and cost-effectively.
Owning a home may be on hold for more families now, but that won’t last. Today, 84% of non-homeowners still aspire to own one. Despite the current market, establishing a home is a critical part of our lifecycle. Even if it may take Americans a little longer to put their own roof over their heads, the innate desire for homeownership is a more powerful force than the market may realize.
